EU Shareholder Rights Directive II

SRD II is a European Union Directive, amending the Shareholder Rights Directive I ("SRD I") which aims to strengthen corporate governance in companies whose securities are traded on regulated markets of the EEA. SRD II sets out to overcome some of the short-comings of SRD I, including reducing risks associated with short termism; enhancing transparency, and encouraging long-term engagement, between shareholders and the companies in which they invest.

SRD II must be transposed into national law by all EEA member states ("Member States"). The deadline for transposition was 10 June 2019. Please note that not all Member States have yet completed their transpositions of SRD II into national law. Banco de Madrid continues to monitor national transpositions.

The Commission Implementing Regulation EU 2018/1212 (the "Regulation") lays down minimum requirements implementing the provisions of SRD II, which aims to prevent diverging national implementations of SRD II. The provisions of the Regulation shall come into force on 3 September 2020.

Yes. There will be penalties for issuers and intermediaries who do not comply with the regulations. These vary from market to market.

SRD II applies principally to securities with voting rights which are issued by companies with their registered office in a Member State and that are admitted for trading on a regulated market within the EEA. This includes multi-listed securities.

Therefore SRD II has a global impact on both intermediaries and shareholders holding in-scope securities.

Please note that across jurisdictions there are some variances with respect to the definition of which types of securities fall under the SRD II obligations. Therefore, in certain markets ADRs / GDRs (if voting rights attached), and bonds may be in scope.

Synthetic instruments held by clients, such as derivatives, will not be subject to SRD II. 

SRD II provides that the "shareholder" of in-scope securities is the natural or legal person recognised as a shareholder under the national law of each Member State. As a result there is currently no harmonisation; certain Member States define the shareholder as the beneficial owner of the shares, and in others it will be the legal or registered holder.

Yes. The obligations for SRD II reporting apply to the in-scope securities held regardless of where the relevant shareholder is based.

It is not yet known if the UK will complete transposition of SRD II following BREXIT. Banco de Madrid continues to monitor the situation.

In our capacity as an intermediary, Banco de Madrid can expect to receive requests for shareholder identification from an issuer, or its agent, through the chain of intermediaries holding its shares in custody for shareholders.

In Member States that recognise the beneficial owner of shares as the relevant shareholder, Banco de Madrid is required to respond directly to the issuer, or its agent, with the required shareholder identity information relating to the client for whom we hold those shares in custody. All information must be transmitted within the timelines and formats specified in the Regulation.

Please note that in Member States that recognise the registered holder of shares as the relevant shareholder, Banco de Madrid, or the intermediary above it in the custody chain will respond with details of the registered owner. In most cases the registered holder will be a nominee entity and will not be the client for which the shares are ultimately held by Banco de Madrid.

Shareholder identification requests will not be set up as corporate actions, and requests are expected to be sent to Banco de Madrid, as an intermediary, outside of the standard corporate action messaging flows. Clients will therefore not see these set up as corporate events through the Banco de Madrid Neo portal.

Banco de Madrid has appointed a third party service provider, Broadridge Financial Solutions Ltd (“Broadridge”) to act on our behalf to manage the shareholder identification process. This includes the receipt of requests, validation of authenticity and submission of responses to the issuer / issuer agent.

Member States may provide that issuers with a registered office in that Member State may only request shareholder identity information with respect to shareholders holding more than a certain percentage of shares or voting rights. Such threshold may not exceed 0.5%.

Please note that not all Member State transpositions are yet finalised; therefore, the final picture of which Member States will impose a threshold is unknown at this time.

Banco de Madrid, and our third party provider Broadridge, will manage the shareholder identification request and response process. If any required shareholder identity data attributes are missing, Banco de Madrid will request such data from our clients to ensure we are in a position to comply with our mandatory obligations to provide responses upon receipt of an issuer request.

It is mandatory for an intermediary to respond to an issuer's request for shareholder identification. Clients therefore cannot opt out of the disclosure of the required information to a requesting issuer (in Member States that recognise the beneficial owner as the shareholder.)

SRD II aligns with existing data privacy regulations, including GDPR, ensuring that individuals are only identified for verified requests and the data is retained only within relevant data retention timeframes.

Banco de Madrid, as an intermediary, must ensure all relevant shareholders for which it holds shares in custody have access to information of upcoming general meetings, which must be transmitted without delay in a standardised format.

Banco de Madrid must also transmit voting instructions received from those shareholders without delay in compliance with the issuer deadline or record date.

For votes cast electronically, a confirmation of receipt of votes must be provided by the issuer to the intermediary, which will transmit it to the shareholder who submitted the vote.

Additionally, after the meeting, a confirmation that a shareholder's votes have been recorded and counted by the issuer can be provided upon request.

Banco de Madrid has appointed a third party service provider, Broadridge, to provide our clients with global proxy voting services and to fulfil our SRD II obligations in respect of general meetings. 

Such services will be provided to clients for all markets in which they hold shares, (including shares issued outside of the EEA, although such shareholdings will be outside the scope of SRD II).

Clients (or third parties acting on your behalf) will be required to connect to the Broadridge proxy voting service offering to ensure they receive information of upcoming meetings, view ballots and have a mechanism to be able to vote. Broadridge will execute the vote instruction in the local market upon receipt. Beneficial owner details will be submitted with the vote instruction in jurisdictions that require this information.

Broadridge will provide a confirmation of receipt of votes, and for SRD II markets will request a confirmation of the recording and counting of votes cast to the issuer.

Broadridge offer a 'freedom of choice ’ model, therefore, if a Banco de Madrid client already appoints their own service provider for vote research or execution services, your service provider will interact directly with Broadridge.

Please note that for proxy voting and meeting services, two Broadridge entities will be used: Broadridge Financial Solutions Limited for Global Proxy and Shareholder Disclosure services; and Broadridge Investor Communication Solutions, Inc for North American proxy services.

Onboarding to the Broadridge ProxyEdge platform will be managed by Banco de Madrid and Broadridge. Banco de Madrid may contact clients to confirm the required user details for the access to be established. Broadridge will provide clients with confirmation of onboarding to ProxyEdge, instructions for use, a dedicated ProxyEdge contact, and training sessions if required.

Client accounts at Banco de Madrid will be linked to a dedicated ProxyEdge ID. If the client already has a ProxyEdge ID at Broadridge, Banco de Madrid request that they send details to the SRD II mailbox in order for us to link their Banco de Madrid accounts accordingly.

Clients who are utilising the existing proxy services provided by Banco de Madrid through an alternative service provider will be migrated to the Broadridge platform in due course. The migration will be handled carefully between the service providers to ensure no ballots are missed or duplicated.

For clients who independently appoint a service provider for vote research or execution services, Banco de Madrid and Broadridge will work with your service provider to complete the set-up.

Clients with no current proxy service will be onboarded to the ProxyEdge platform as described above.

Onboarding will be completed in August 2020, in advance of the SRD II go-live date.

Banco de Madrid must ensure our clients have access to information of upcoming meetings which will be provided via our third party service provider, Broadridge.

In relation to corporate events other than general meetings, Banco de Madrid must ensure our clients have access to information, a mechanism to be able to elect and to transmit shareholder elections to the next intermediary in the chain. In all aspects the information must be transmitted without undue delay.

Banco de Madrid does not anticipate significant impact to the current Corporate Action services provided to our clients. As intermediaries are required to adhere to specific timelines for the transmission of information, clients may see an increase in the turnaround time for certain jurisdictions.

Banco de Madrid will send a communication (titled "SRD II – Shareholder identification and Use of Broadridge ProxyEdge") to all impacted clients containing details of the services Banco de Madrid will provide, through Broadridge, to meet the requirements of SRD II. Please ensure that you have read and understood this information. You do not need to do anything further in relation to this communication.

Clients may be contacted in order to complete the set-up process to Broadridge ProxyEdge. Banco de Madrid ask that any client who has an existing ProxyEdge ID provide this to  the SRD II mailbox to facilitate this process. Please refer to Section D for further details.

Banco de Madrid may also contact clients to validate any missing data attributes that may be required for shareholder identification reporting purposes under SRD II.

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